Real Estate Commission lawsuit and decision explained for those selling and buying without using a realtor

Sitzer/Burnett decision and new lawsuits against realtors, what does it mean to homeowners and buyers?

If you have not heard the National Association of Realtors, several MLS services, and several large franchise real estate brokerages were ordered to pay $1.8 Billion.  The jury decided in the Sitzer/Burnett case, that real estate agents, along with the National Association of Realtors, and the Multiple listing services conspired to keep real estate commissions inflated.  They did so by requiring sellers pay the buyers realtor and requiring commission to paid to a buyers agent if listed on the Multiple Listing Services.  And they said realtors have all colluded to keep the real estate commission 6% by training agents to not accept less.  This decision is being appealed and therefore will most likely take a few years before its finals before being fully resolved.  Since then more lawsuits are coming up that are threatening the real estate industry.  Several new law suits that have been filed since the decision as spelled out in the Real Deal Article on November 2 2023 outlines.

So what should an owner of a property that wants to sell learn from this case?

The most important take away is that commissions paid to a realtor are negotiable.  And by negotiable I mean what the buyer and seller is willing to pay and what the realtor is willing to accept for their efforts.  The truth is in most markets this already takes place. What is important to realize is that if you are listing with a realtor, whom is a member of and will list your home on the MLS, you are generally required to offer compensation to the buyers agent.  This lawsuit, has resulted in many MLS services removing the requirement to offer compensation to the buyers real estate agent. The idea is this commission if paid by the buyer will result in a lower fee because it will be negotiated where when paid by the seller it is not.  This too is actually untrue in many markets.  In fact it happens often that a buyers realtor will make an offer and request a higher commission than what is stated on the MLS.

Further this lawsuit alleges it is unfair for all realtors to charge the same amount, 6%. This amounts to collusion. The truth is that this is not exactly true either.  There are many realtors that are willing to work for less than 6% listing agreement.  The issue that is at the heart of this is the big real estate francises teach their agents to take no less than 6%, thus leaving consumers with little opportunity to pay less. It is true that real estate brokerages train their agents to get as much commission as they can.  Although it is hard to think that this is unfair generally. Sure in markets that are underserved. But in larger markets there is sufficient competition that commissions vary greatly.  Further homeowners and buyers are becoming more educated, have greater resources, and thus the true take away is that things will change in the real estate industry.

What will be the ultimate result of this? Only time will tell.  However for now, realtors have a lot to consider.  They may be taking listings where the seller has elected to not pay a buyers agent, thus limiting the marketing of the home.  Realtors whom work with buyers are now going to have to explain and justify their fee as an added cost to an already expensive undertaking. Buying a home in this country is already extremely expensive, adding money for a realtor will certainly be problematic to home buyers.  Currently there are no lenders that will permit the buyers agent commission to be added to the purchase price to be financed with a mortgage.  Therefore the only hope is for he buyer whom is working with a realtor to have the buyers agent be compensated by the seller in order to afford that fee.   Buyers will start to see this added cost and begin to demand it be lowered.

In the immediate future this decision has empowered sellers to negotiate the commission being charged, and to consider selling without using a realtor altogether. Already some listings on the MLS have no commission being offered to the buyers agent.  It is true that many realtors may not accept less than 6% to list a home knowing the sharing of commission with a buyers agent is important and opens up the marketing of the home.  But others may want to offer a reduction in the selling agents commission at a shot at earning the buyers agent commission, thus forcing those full priced realtors to drop their prices, or lose out on potential listings.  It certainly stands to reason the evolution trending towards sellers paying zero to a listing agent and a commission only to the buyers agent as a way of reducing costs and even at a chance of selling to someone whom does not a realtor.  And this is where the biggest concerns are to be had.

Does a realtor truly bring value to the process of buying and selling a home?

The answer is they do, but not for everyone.  Sometimes a person passes away, the hires live in another state.  Relying on a licensed realtor to sell a home in this case makes total sense.  Sometimes a seller is too busy to do all that is needed to sell a home, using a realtor makes total sense.  Sometimes a person is not savvy at selling and needs guidance, relying on a realtor in this case too makes total sense.  Someone may be unfamiliar with the buying process.  Or unfamiliar with an area. These cases too make using a realtor a wise choice.  Maybe a buyer and a seller are bad at negotiating or coming up with offers, these are great reasons to use a realtor.

However for those savvy sellers, whom have been through the process before, have strong opinions, are available to show their home, will begin to use the growing number of companies making it easy and inexpensive to put a home on the market, and save thousands of dollars selling their home themselves. Savvy buyers whom have purchased before, know what they want to pay for a home, know how to negotiate, and utilize currently available resources allowing them to find homes for sale in the area they are looking, learn about the area, learn what homes are selling for will be able to purchase a home and not have to compensate a realtor by putting the realtors commission into the purchase price.  This shift will eventually lead to a greater number of real estate search sites and therefore reduce the relevance of the MLS, and an even further reduced role for a realtor.

And this is the biggest take away from all of these lawsuits, the relevance and usefulness of a realtor has been reduced greatly.